Shocking developments

03/05/20
  • CLDX fell more than 30% yesterday on CEO shake-up, forward guidance
  • Small-cap marketing/data analytics company had soared into Feb. record highs
  • Put options jumped Wednesday: A target for bulls?

While everyone’s now well aware of what unexpected events can do to an unsuspecting market, the same dynamic plays out virtually every day at the individual-stock level.

On any given day, at least a few tickers will be rocking—up or down—because of “surprise” developments, even if the broad market is going nowhere. And there’s a good chance these stocks will make an appearance on one or more LiveAction scans, as Cardlytics (CDLX) did Wednesday when it topped the “% Price Losers” list:

Chart 1: LiveAction scan: % Price Losers, 3/4/20. Off more than 30% yesterday.

Source: Power E*TRADE


The stock was down more than 30% in early trading in the wake of its Tuesday after-hours earnings release, when it also surprised the market by announcing the firm’s COO would take over as CEO.1

The numbers themselves were, in a word, great: The company crushed earnings estimates (14 cents vs. 4 cents) and topped revenues handily, but (there’s that word) also lowered its outlook, estimating Q1 revenue to come in around $43.5-46.5 million vs. the $52.77 million analysts had been expecting.2

Take that, add the C-suite shake-up, and you get a chart that looks like:

Chart 2: Cardlytics (CDLX), 10/9/19–3/4/20. Cardlytics (CDLX) price chart. Deep discount from Feb. highs

Source: Power E*TRADE


In the BC (Before Coronavirus) era, though, CDLX had been rolling, having gained 480% in 2019, and 158% just from mid-November to mid-February, when it hit its all-time high of $107.50. Along with the rest of the market, the stock was then subjected to the coronavirus discount, although it was rebounding this week before the boom was lowered yesterday.

Cardlytics, which has been trading for only two years, began attracting attention last year for its strong position in the growing marketing analytics/banking space—i.e., targeting consumers with specialized marketing and deals based on their credit and debit card activity.3

Business appeared to be good, as CDLX returned positive earnings each quarter despite the fact that analysts were forecasting losses. (The company’s previous earnings release, from November, is the up gap toward the left side of the chart.)

With the stock now trading roughly 50% below its February high, and the bulk of that discount arguably the result of two isolated shocks—the coronavirus sell-off and the guidance/C-suite shake-up—traders who still like the Cardlytics story may be looking for entry points. And given the way yesterday’s slide pumped up put options, some of them may be considering selling puts as way to capture extra income while establishing a position in the stock (see “Going long with puts”).

Chart 3: CDLX April put options, 3/4/20. Put premiums skyrocketed.

Source: Power E*TRADE


Yesterday, for example, April $55 puts were trading around $6.90 ($690 per contract), up more than 200% from Tuesday. Traders who think the stock may trade somewhat lower before finding its footing (worth considering in the context of a potential broad-market test of last week’s lows) may be looking at the $50 or $45 puts, with the understanding that the lower the strike, the lower the odds they’d actually get assigned the shares.

Different choices for different outlooks and risk levels. Smart traders never take unnecessary risks, but when opportunities arise, they need to weigh all their options.

The more the merrier: On Wednesday the Bank of Canada cut its target lending rate 0.5% to 1.25%, supporting hopes of a coordinated central bank response to the coronavirus.

Oh yeah, it’s an election year: Michael Bloomberg dropped out of the Democratic presidential field and endorsed Joe Biden, creating a serious challenge to the Sanders Express—a development at least one source cited as a contributor to yesterday’s stock rebound.4

Today’s numbers (all times ET): Challenger Job-Cut Report (7:30 a.m.), Productivity and Costs (8:30 a.m.), Jobless Claims (8:30 a.m.), Factory Orders (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: National Beverage (FIZZ), Burlington Stores (BURL), Tech Data (TECD), Kroger (KR), Costco Wholesale (COST), Marvell Technology (MRVL).

 

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1 MarketWatch. Cardlytics stock plunges more than 25% after CEO departure, earnings. 3/3/20.

2 StreetInsider.com. Cardlytics (CDLX) Tops Q4 EPS by 14c, Offers Q1 Guidance. 3/3/20.

3 Forbes. This Small Cap Could Be A Giant. 8/29/19.

4 Stocks Rebound on Stimulus Hopes, Biden’s Surge: Markets Wrap. 3/4/20.

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